Distribución justa y equitativa de los beneficios

8.3.1

Climate Change Act 2008

8.3.1.1 The Climate Change Act 2008 commits the UK to a net reduction in GHG emissions (against the 1990 baseline) of 80% by 2050 through a system of carbon budgets. Each carbon budget is set by the Government and is for a period of 5 years.

8.3.1.2 The UK Government has legislated for the first four carbon budgets to cut emissions by 23% below base year levels by 2012, 29% by 2017, 35% by 2022 and 50% by 2027 from 1990 levels (The Carbon Budget Order 2009 and The Carbon Budget Order 2011).

8.3.1.3 The Committee on Climate Change was established under the Climate Change Act 2008 to advise the UK and devolved administration governments on setting and meeting the carbon budgets, and preparing for climate change. In May 2011 the Committee published the Renewable Energy Review which sets out a detailed vision of the role of renewable energy in meeting longer term emissions targets. The Review concludes that renewables is a promising option for delivering decarbonisation of the power sector by 2030 at reasonable cost and that firm commitments on support for offshore wind and marine generation through the 2020s should be made now (Committee on Climate Change, 2011).

8.3.2

Energy Act 2013

8.3.2.1 The Energy Act 2013 received Royal Assent on 18 December 2013. The Energy Act makes provisions to incentivise investment in low carbon electricity generation, ensure security of supply, and help the UK meet its emission reduction and renewables targets. In particular the Energy Act contains provisions from the Department of Energy and Climate Change (‘DECC’) (now BEIS) for Electricity Market Reform (‘EMR’).

8.3.2.2 The EMR set out the framework for replacing Renewables Obligation Certificates (‘ROCs’), granted under the Renewables Obligation (‘RO’), with Contracts for Difference (‘CfDs’) to provide stable financial incentives to encourage investment in low carbon electricity generation. The RO closed to new projects on 1 April 2017.

8.3.2.3 A contract for difference is described by the UK Government as:

“a private law contract between a low carbon electricity generator and the Low Carbon Contracts

Company (‘LCCC’), a government-owned company. A generator party to a CfD is paid the difference between the ‘strike price’ – a price for electricity reflecting the cost of investing in a particular low carbon technology – and the ‘reference price’– a measure of the average market price for electricity in the GB market. It gives greater certainty and stability of revenues to electricity generators by reducing their exposure to volatile wholesale prices, whilst protecting consumers from paying for higher support costs when electricity prices are high.” (Department for Business,

8.3.2.4 Initially CfDs were provided through a bilateral Final Investment Decision Enabling Scheme (‘FID Enabling Scheme’) with the UK Government, which provided certainty to eligible developers on strike prices (and therefore revenue streams) agreed under the contract. Under the FID Enabling Scheme, Ørsted was awarded FID enabling contracts for three projects: Hornsea 1, Burbo Bank Extension and Walney Extension.

8.3.2.5 Following the FID enabling process, CfD allocation moved to a competitive tender mechanism in which projects must submit bids in an auction for a fixed quantity of funding. The move to a competitive auction mechanism was one of the key drivers in the significant cost of energy reduction in the UK offshore wind industry, as evidenced by the success of Ørsted’s Hornsea 2 project in the most recent CfD allocation round. Compared with the £140/MWh strike price obtained by Hornsea 1 in the FID Enabling Scheme in 2014, Hornsea 2 obtained a strike price of £57.50/MWh in 2017. This not only demonstrates the dramatic fall in the cost of offshore wind but also the industry’s decreasing reliance on Government funding to support revenue streams. 8.3.2.6 Ørsted has also taken steps to reduce the cost of energy through both technological innovation

and procurement strategy. One example of this is through its use of a Multi-Contract Procurement Strategy (‘MCPS’), which is considered to be the most cost effective and efficient procurement mechanism for a large, capital intensive project and involves splitting contracts into key component areas in order to obtain the best price for each given component. Ørsted will work closely with key existing suppliers as well as facilitating the entrance of new suppliers into the market, with a view to encouraging competition and promoting supplier diversity. This process is heavily driven by Ørsted’s own internal Product Line organisation, which is comprised of various members from across Ørsted’s Engineering, Procurement and HSE departments.

8.3.2.7 The Product Line department was established in 2014 with the purpose of reducing the cost of energy through the development of standardised technology concepts and platforms across key components of offshore wind, including but not limited to: turbines, foundations, cables and substations. Dedicated procurement teams focus on a component in order to research and secure the most cost-effective solutions in the market. By combining the in-depth expertise of the Product Line teams and the MCPS approach, Ørsted will aim to secure the most competitive price possible for key supply chain items, thereby driving down the overall cost of energy for future windfarm developments.

8.3.2.8 One recent success was the introduction of a new Wind Turbine Generator (‘WTG’) supplier (in the form of MHI Vestas Offshore Wind) in addition to Siemens Wind Power, which has traditionally supplied WTGs for Ørsted projects. WTGs from MHI Vestas Offshore Wind were successfully deployed on the recently commissioned Burbo Bank Extension project and helped introduce further competition into the turbine supply chain.

8.3.2.9 Ørsted still aims to secure a CfD for Hornsea Three as part of the UK Government’s continued support for offshore wind. The total funding available to projects eligible for a CfD is controlled through the Levy Control Framework (‘LCF’). The LCF sets an annual budget for the projected costs of all BEIS’ low carbon development schemes that are funded through the RO, Feed in Tariff Scheme (‘FiTs’) and CfD mechanism.

8.3.2.10 In the Chancellor’s 2017 Autumn statement, a commitment was made to maintain the remaining funding allocated for CfD eligible schemes, which currently stands at up to £557m. The UK Government has also committed to a further CfD auction in 2019 and stated that:

“the significant cost reductions that were achieved in the last CfD auction indicate this support

could secure far more low carbon electricity than originally anticipated” (HM Treasury, 2017).

8.3.2.11 The UK Government has also maintained that it will not rule out future support for any technology, and so the Applicant is confident that there will be sufficient funding opportunities for the Project. There may also be alternative routes to market available for offshore wind developments in future in the form of corporate Power Purchase Agreements (‘PPAs’), although this has yet to be tested for large scale offshore wind projects in the UK.